1) Gourmet Company has assembled the following data relating to its two most popular products: Blender Food processor Direct material $18 $33 Direct labour $12 $27 Manufacturing overhead @ $48 per machine hour $48 $96 Cost if purchased from an outside supplier $60 $114 Annual demand (units) 20,000 28,000 Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $30. Management have a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Required: If 50,000 machine hours are available, and management desires to follow an optimal strategy, how many units of each product should the firm manufacture? How many units of each product should be purchased? (11 marks)

2) Alexis Ltd manufactures two chemicals, LX3 and Super H. Contribution margin data follow: LX3 Super H $ $ Unit sales price 22.00 72.00 Less: Direct material 8.00 10.00 Direct labour 3.00 18.00 Variable overhead 1.25 7.50 Variable selling and administrative costs 0.75 0.50 Unit contribution margin 9.00 36.00 === ==== Alexis's production process uses highly skilled labour, which is in short supply. The same employees work on both products and earn the same wage rate of $21 per hour. Required: a) Which of Alexis's products is the most profitable? Explain.